JACK IN THE BOX EARNINGS DECLINE 38%

Fewer sales of eateries to franchisees blamed; profits fall to $13.4M

Jack in the Box, in the midst of a franchising effort, reported Wednesday a 38 percent drop in net earnings during the last quarter, due largely to fewer sales of company-owned restaurants to franchisees.

Overall, earnings for the San Diego-based chain fell to $13.4 million, from $21.6 million a year earlier.

While revenues generated by the growing number of franchised stores increased during the second quarter, overall revenues slipped from $366.5 million to $355.6 million for the quarter ending April 14.

“The decline in earnings has mostly to do with refranchising and the gain a year ago of 21 cents per share from the sale of 31 restaurants to franchisees,” said Jack in the Box spokesman Brian Luscomb.

By comparison, just four stores were sold in the second quarter of this year, he said.

An encouraging sign, Luscomb noted, is that same-store sales growth is outpacing that of its competitors, based on figures tracked by The NPD Group, a market research firm.

CEO Linda Lang acknowledged the sales pace got off to a slow start early in the quarter, in part, because of “pressures on consumer spending due to higher payroll taxes, delayed tax refunds and the rapid increase in gas prices.”

Traffic in general, though, has been weak across the fast-food industry, observed analyst Jeremy Cohen of Morningstar. That’s been offset by a slowdown in food-cost inflation and higher menu prices, he noted.

In the long run, Jack in the Box’s conversion of company-owned stores to franchised outlets will free the company to focus more on corporate issues like menu design and advertising, Cohen said.

To date, 1,710 of the chain’s 2,256 restaurants are owned and operated by franchisees. By the end of the current fiscal year, Jack in the Box expects to have opened 20 new restaurants, six of them company-owned, Luscomb said.

“Jack in the Box is clearly taking market share from the competition, and it’s really due to the progress we’ve made in improving the dining experience through our re-imaging program that gives restaurants a more-contemporary feel,” Luscomb said. “On the menu side, we launched our “Hot Mess” campaign in early February, which centered on the Hot Mess burger, potato wedges and Hot Mess cinnamon shake. It was a very successful campaign for us.”

Earnings were announced after the close of the stock market. Shares of Jack in the Box closed at $38.33, up 11 cents or 0.29 percent.